International capital market

9 International Financial Markets

Learning Objectives

Wild, John J., Kenneth L. Wild & Jerry C.Y. Han. International Business: The Challenges of Globalization, 5th Edition. Pearson Learning Solutions

After studying this chapter, you should be able to

1 Discuss the purposes, development, and financial centers of the international capital market.

2 Describe the international bond, international equity, and Eurocurrency markets.

3 Discuss the four primary functions of the foreign exchange market.

4 Explain how currencies are quoted and the different rates given.

5 Identify the main instruments and institutions of the foreign exchange market.

6 Explain why and how governments restrict currency convertibility.

A LOOKBACK

Chapter 8 introduced the most prominent efforts at regional economic integration occurring around the world. We saw how international companies are responding to the challenges and opportunities that regional integration is creating.

A LOOK AT THIS CHAPTER

This chapter introduces us to the international financial system by describing the structure of international financial markets. We learn first about the international capital market and its main components. We then turn to the foreign exchange market, explaining how it works and outlining its structure.

A LOOK AHEAD

Chapter 10 concludes our study of the international financial system. We discuss the factors that influence exchange rates and explain why and how governments and other institutions try to manage exchange rates. We also present recent monetary problems in emerging markets worldwide.

Wii Is the Champion

Kyoto, Japan — Nintendo (www.nintendo.com) has been feeding the addiction of video gaming fans worldwide since 1989. More than 100 years earlier, in 1889, Fusajiro Yamauchi started Nintendo when he began manufacturing Hanafuda playing cards in Kyoto, Japan. Today, Nintendo produces and sells video game systems, including Wii, Nintendo DS, GameCube, and Game Boy Advance that feature global icons Mario, Donkey Kong, Pokémon, and others.

Nintendo took the global gaming industry by storm when it introduced the Wii game console. With wireless motion-sensitive remote controllers, built-in Wi-Fi capability, and other features, the Wii outdoes Sony’s Playstation and Microsoft’s Xbox game consoles. Nintendo’s game called Wii Fit cleverly forces player activity through 40 exercises consisting of yoga, strength training, cardio, and even doing the hula-hoop. Pictured at right, Nintendo employees perform a song together as they demonstrate the game “Wii Music.”

Yet Nintendo’s marketing and game-design talents are not all that affect its performance—so too do exchange rates between the Japanese yen (¥) and other currencies. The earnings of Nintendo’s subsidiaries and affiliates outside Japan must be integrated into consolidated financial statements at the end of each year. Translating subsidiaries’ earnings from other currencies into a strong yen decreases Nintendo’s stated earnings in yen.